Sponsorship Disclosure and Consumer Deception: Experimental Evidence from Native Advertising in Mobile Search

Sponsorship Disclosure and Consumer Deception: Experimental Evidence from Native Advertising in Mobile Search

Market Science. January
2020, Vol. 39, Issue 1, Pages 5-32

Recent advances in advertising technology have lead to the development of “native advertising,” which is a format of advertising that mimics the other nonsponsored content on the medium. Whereas advertisers have rapidly embraced the format on a variety of digital media, regulators have expressed serious concerns about whether this format materially deceives consumers because the advertising disclosure is incomplete or inappropriate. This has reignited a longstanding debate about the distinction between advertising and content in media markets, and how it affects consumers. This paper contributes to this debate by providing empirical evidence from a randomized experiment conducted on native advertising at a mobile restaurant-search platform. We experimentally vary the format of paid-search advertising, the extent to which ads are disclosed to over 200,000 users, and track their anonymized browsing behavior including clicks and conversions. The research design we propose uses comparisons of revealed preferences under experimentally manipulated treatment and control conditions to assess the potential for consumer confusion and deception. A design based on revealed preference speaks to the “material” standard of regulators, helps assess confusion while avoiding directly questioning consumers, and may be useful in other settings. Implementing the design, we find that native advertising benefits advertisers and detect no evidence of deception under typically used formats of disclosure currently used in the paid-search marketplace. Further investigation shows that the incremental conversions due to advertising are not driven by users clicking on the native ads. Rather, the benefits from advertising are driven by users seeing the ads and later clicking on the advertiser’s “organic” listings. Thus, we find little support of native advertising tricking users into clicking and driving them to advertisers as typically feared; instead, users seem to view ads and deliberately evaluate the advertisers. Furthermore, mere exposure seems sufficient to produce most of the incremental effect of advertising.